Strategic analysisThe Future of Digital Payments

It's simply staggering how many payment startups are being formed these days. Everyone is trying to see if they can come up with some way to become the next payment platform, the future digital MasterCard.

The payment startups range from hardware solutions to digital services. Some are creating iPad or mobile-based credit card readers for shops, while others try to make it easier to pay online.

You have probably already heard about Square. It's a beautifully simple system, and it's poised to capture a big chunk of the small business POS market. But Square is far from alone. A ton of other companies are experimenting with the same concept. Search for 'iPad POS' and you will find hundreds of services just like it.

At the other end of the spectrum, we find the many new digital-only startups. The startups who are looking to find ways to change how we pay for things online. Many of which are based on some form of micropayments.

But unlike Square, none of these digital payment startups are making much of an impact. Few, if any, have been able to create a viable business out of it, and none of them are even close to becoming the next MasterCard.

In this report we are going to explore why this is, and why these startups are trying to solve the wrong problem.

But first, let's talk about the trends

Is there really a need for a new form of payment? Well, that depends on how we look at it.

The credit card was invented as a solution to all the shortcomings of physical money. It was far more secure. It's easy to carry around. There was no waste. Shops and banks could process payments without having to exchange paper notes, and you as a person could pay for whatever you wanted in an extremely simple way.

The credit card is the optimal tool for paying for goods in the physical world. Just swipe, type in your pin, and you have paid.

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